What is Credit Score? Why it is important in getting bank loans

Credit Score is the key for getting a Credit Card or going for a housing loan. Your credit score slips down and opportunities for further credit gets affected if repayments of loans are irregular or the cheques you issued bounce back. Not only that, frequent contacts with banks for loans also influence your credit rating marks.

Tarun is a higher level official in a private firm. He is thinking of purchasing a house. His colleague, Shyam has purchased a house on bank loan recently. On his advice, Tarun contacted a housing finance organisation. They agreed to sanction him the housing loan at half per cent higher rate of interest than that of Shyam, for the reason that since Tarun’s credit score is less than that of Shyam. Not knowing about credit score, Tarun obtained a copy of his credit history report. In it the details of his payments were correctly mentioned, yet, his credit score is less than that of Shyam. He contacted a financial consultant to know the reasons for it. After comparing both their reports, it is concluded that Tarun had the habit of frequently applying to banks for loans and on sanction of the loans, used to reject them. Details of such rejections also are recorded in the report. Result – his credit score has gone down. His past fancy transactions have now created a situation to pay half per cent more interest.

Credit score is recorded at every point …

Along with the particulars of loans and their repayments, every PAN card based transaction will be recorded in CIBIL (Credit Information Bureau (India) Ltd). The number of times an individual has requested CIBIL for credit score also will be recorded in it. Particulars like how much loan applied for, whether the sanctioned loan has been taken or not, the time delay for it if taken and the related particulars will be recorded therein.

Especially, contacting the Banks for loans for a number of times reduces the credit score. Its influence falls on subsequently taken long term loans like housing loans. Therefore, when on the lookout for a loan, these points should be taken note of.

Don’t forget to do these to maintain a good credit score

* Before deciding to go in for a loan, some points must be got confirmed. Is there a real necessity to apply for a loan? For how much period of repayment, it should be taken? – analyse these fundamental points first. Applying for fun for a loan and subsequently not availing it, will be recorded in your credit history, which drags down your credit score.

* Before going for a loan or for a Credit Card, apply to CIBIL for your credit report. For it, go to CIBIL web site and download the prescribed application form. Fill it up, enclose copies of your PAN card and address proof and send it to CIBIL along with a demand draft for Rs.142. Soon thereafter, CIBIL will send you your Credit Report. You can check up the particulars mentioned therein. It is always advisable to check twice when paying EMIs or using Credit Card.

* In case, mistakes are detected in the report, it should be brought to the notice of the member banks of CIBIL and request for correction of the mistake. If no response is received from the bank within one month, you can consult Banking Ombudsman. Even a small mistake in the Credit Report may cost you high in future. Therefore, extreme care is to be taken.

* It is advisable to apply for housing, personal, vehicle loans and for credit cards only after you get confirmed that there are no mistakes in the CIBIL records.

*Instead of directly contacting the banks and applying for loan, clarify yourself online on the points of doubts, for which a number of sites are available in the web. Interest rates of various banks and financial institutions are available in these sites. You can also compare them for yourself.